Supply Chain Matters 2011 Annual Predictions Scorecard- Part Two

As we transition into the final month of 2011, it is time to re-visit the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which we outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In our Part One posting, we provided a scorecard of our first two predictions. In this Part Two posting, we will revisit predictions three and four.

Prediction Three: As in 2010, incidents of supply chain risk, disruption, and breakdowns in quality will unfortunately continue.

Our prediction was that similar to 2010, we believed that 2011 would bring even more severe incidents of supply chain risk, and consequently finally bring senior executive attention and leadership to the area of supply chain risk identification and proactive risk mitigation planning.  This was one prediction that we were more than willing to see unfulfilled, and looking back, we are astounded at the degree of severity and tragedy that continues to occur in this area.

A highlight of 2011 global supply chain disruption has to include two of the most devastating incidents that have impacted global supply chains, namely the severe earthquake and tsunami that impacted northern Japan in March, and the ongoing monsoon-related floods that are occurring in Thailand and in other Southeast Asian countries.

The Japan incident not only caused untold human tragedy, but it has had a permanent impact on companies residing in the automotive, semiconductor and high tech industries. Manufacturers discovered what supply chain sourcing vulnerabilities they really had, particularly in lower tiers of their supply chains. Global manufacturers such as Honda, Toyota and Texas Instruments saw their high volume production operations severely impacted for six months and beyond, and just when production volumes were beginning to reach normal levels, the flooding in Thailand added a new setback. Small and mid-market suppliers were severely impacted and are still struggling.  Our out-on-the limb prediction was that yet another corporation will experience a severe incident, and sadly, that was a no-brainer.   It has turned out to far more than one.

There were other incidents as well:

• Severe winter weather that impacted the entire globe earlier in the year.
• The Arab Spring and threat of cascading political turmoil that interrupted energy markets.
• The recall of thousands of pounds of ground turkey due to an outbreak of salmonella poisoning. Global agricultural giant Cargill incurred a 66 percent decrease in first quarter 2012 fiscal quarterly earnings, and attributed some of that erosion to the costs of the ground turkey recall and unprecedented floods in the U.S. Midwest.
• U.S. farmers had to endure not only severe spring flooding, but also severe drought conditions in other parts of the U.S. Southwest.

Regarding previous incidents of disruption, there was evidence that excessive cost cutting may have contributed to the systemic quality breakdown that impacted Johnson & Johnson, along  with an admission from Kellogg Company  that it had cut too deeply into operations and quality control processes.

A shout-out should be extended to many supply chain teams who worked countless hours and undertook enormous challenges to minimize what could have been more severe bottom-line impacts. We trust that their efforts were recognized by senior management.

On the topic of senior management, there is now little doubt that supply chain sourcing, risk identification and mitigation has reached the C-level agenda.  In our travels during the Fall conference season, we heard many supply chain executives speak to a new awareness and sensitivity to risk with some companies taking on a complete review of their global supply chain risk profile.

We will have more to state on this topic in our 2012 predictions.

Prediction Four: Supply chain technology deployment will remain tactically focused and buyers will remain in a favored position for negotiating technology acquisitions.

Similar to 2010, cost and profitability pressures caused investments in supply chain technology to continue to be tactically focused and highly scrutinized.  Many supply chain technology and service vendors reported continued elongated sales cycles, touch points and reference checks as buyers needed to insure that limited funds were invested in the right process and with the right vendors.

We predicted that the business process and technology enablement priorities in 2011 would manifest in needs of deeper and broader supply chain visibility / intelligence and more rapid planning and synchronization of supply chain fulfillment processes. We anticipated popular investment areas to be in improving inventory management, a more responsive and more extended sales and operations planning process, and adaptability to sensing and responding to changes in product demand.  All of these predictions have been evident.

We further predicted a slowdown in technology acquisition for strategic sourcing and P2P procurement because of shifting technology enablement priorities towards the more operational sides of the supply chain process needs.  That turned out to be an incorrect prediction. Many vendors in these areas reported healthy sales growth throughout the year which leads us to believe that procurement teams managed to gain more favor with CFO’s in investing in technology to yield more immediate material cost savings in direct, indirect, and services procurement costs.

We believed that 2011 would bring a renewed emphasis on quality oversight and process improvement needs, coupled with improved asset management. That turned out to be correct, especially when companies were under the gun to improve overall quality.

We believed that technology directed at supply chain risk mitigation would gain more attention and uptick, especially technology related to the tracking and identification of products throughout the extended supply chain. That turned out to be premature, since many companies are still struggling with identifying risk processes and who has organizational responsibility and accountability for the risk management process that umbrellas the global supply chain.  Then again, in today’s uncertain world, risk management is the most stressful of all supply chain jobs. Technology investments to help mitigate risk will not uptick until, and unless, these organizational processes are addressed.

This concludes our Part Two scorecard update of our Supply Chain Matters 2011 Predictions for Global Supply Chains.  In our Part Three update, we will revisit predictions five and six.

Bob Ferrari

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

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